EU’s dotcom dilemma: can it find the formula for growth and still protect the consumer?

THE Internet moves at lightning speed, so perhaps it is not surprising that the EU – which still operates under rules devised when computers ran on vacuum tubes and were the size of school buses – often has trouble

At last year’s ‘dotcom summit’ in Lisbon, Union leaders promised to make the EU the world’s most innovative and competitive economy by 2010.

Over the past year, however, policy-makers have been confronted with a whole range of challenges to achieving this lofty goal – from a global economic downturn caused in no small part by the ‘dotcom’ crash to the uncertainty rocking the telecoms industry to an international patchwork of laws regulating (or not) e-commerce.

That the ever-growing online dossier is shared by a handful of Commissioners with often-conflicting agendas – including single market chief Frits Bolkestein, justice and home affairs supremo António

Various member states also have their own ideas about how best to regulate online commerce while fostering its growth. Take, for instance, the all-important issue of taxation. Firms in the EU are often at a disadvantage because customers can avoid paying value-added tax (VAT) if they shop online from non-Union companies. Plus, EU companies have to pay VAT even when they sell to non-Union customers. Progress is being made on addressing the 15-25% cost disadvantage hampering EU firms, but slowly. Until it can be resolved, expect consumers to look for the best deals elsewhere.

Online shopping is another problem area. Until Europe can effectively deregulate its telecoms market, chances are it will have trouble promoting Internet-based commerce. Over 45% of western Europeans have access to the Internet but just one in five have used it to buy something.

Consumer unease with online shopping is understandable. Under most current systems, Union citizens must pay onerous phone connection charges.

This is in addition to whatever they pay their Internet service providers (ISPs) for log-on access. So however attractive the price may be for, say, a book on Amazon.co.uk, by the time taxes, shipping and connection charges are added, the consumer may as well have taken the trouble to go to the local bookshop.

Plus, there’s still a mistrust of Internet security that is not helped by constant stories of nasty, hard-drive-destroying viruses and hackers looking to steal identities and disrupt networks. Employers’ and consumers’ organisations are frantically trying to come up with ‘trustmarks’ schemes which boost confidence in online financial transactions. But right now there is such a confusing jumble of monitoring agencies and security systems that it’s hard to know which trustmarks to trust.

Companies are grappling with EU and national regulations on data privacy. The Union is in the technological vanguard when it comes to protecting personal information, but there is concern in the web-crazed US and elsewhere that European data-privacy rules hurt competition and force companies to pass along the cost of compliance to consumers.

And where should the fine line be drawn between legitimate online canvassing to drum-up new business and outright electronic harassment? It’s unclear, but the fact that e-mail solicitations are now almost universally referred to as ‘spam’ indicates that most people think unwanted messages fall in the latter category. The European Commission says the act of downloading unsolicited e-mails costs consumers billions of euro every year and is pushing for rules which would require firms to get permission from would-be customers before they can send electronic sales pitches. But one man’s spam is another’s foie gras. The European Parliament wants member states to be able to put the onus on the consumer by allowing e-mail solicitations to flow freely unless users specifically ask that they be blocked.

Add in a growing concern over credit-card fraud and legal uncertainty about which rules apply in cross-border e-commerce disputes, and it’s a wonder anyone ever turns on a modem. The new, precarious world economy is not helping matters, especially with the telecoms industry in financial turmoil. Stock prices have fallen and competition has become fierce as firms try to stay afloat in a semi-liberalised market and negotiate a hotch-potch of EU and national regulations.

Many companies invested heavily in third-generation (3G) mobile phone technology only to overestimate consumer demand – not to mention their ability to put infrastructure in place to exploit it.

After shelling out 130 billion euro last year for 3G licences, telecoms companies are fighting to survive – many of them contemplating cross-border mergers. It remains to be seen which firms will be best positioned to take advantage of the latest technology.

In the meantime, the US and Japan are catching up Europe in mobile telephony. It will be hard enough for the Union to find the right formula for regulating e-commerce that accommodates and promotes technological change, boosts growth and protects consumers.

But the real test will be whether it is able to adapt to the fast-changing online world in such a way that this year’s laws do not become as obsolete as last year’s Macintosh.